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This just came through on email to me this morning, I did a quick search but didn't see this posted apologies if it has already. Wasn't sure where to post this but feel free to move it 
Overall the change to Lord Clarkes judgment doesn't change the overall decision however note the final paragraph of the article.
Overall the change to Lord Clarkes judgment doesn't change the overall decision however note the final paragraph of the article.
It has been drawn to our attention that Lord Clarke made a late change to his single paragraph judgment in the Supreme Court in Cavendish Square Holding BV v El Makdessi and ParkingEye Ltd v Beavis [2015] UKSC 67, which was not reflected in the version originally published on the Supreme Court website. In his judgment, Lord Clarke agrees with Lord Hodge's views on the proper construction of clauses 5.1 and 5.6 of the agreement between Cavendish and Mr Makdessi.
Clauses 5.1 and 5.6 provided respectively that:
In the amendment, Lord Clarke agrees with Lord Hodge in having an open mind about whether clause 5.1 was a primary obligation and, therefore, outside the scope of the penalty rule (see paragraph 291, Lord Clarke and paragraph 270, Lord Hodge). In relation to clause 5.6, Lord Clarke also agrees with Lord Hodge, holding that it was a secondary obligation which fell within the scope of the penalty rule (see paragraph 291, Lord Clarke and paragraph 280, Lord Hodge). However, on the facts, the clauses were not penalties.
In their joint judgment, Lords Neuberger and Sumption (with whom Lord Carnwath agreed), held that clauses 5.1 and 5.6 were, in essence, price adjustment clauses, and therefore primary obligations. However, although in their view the penalty rule was not engaged, they proceeded as if it were, and held that the clauses were not unenforceable penalties.
Nonetheless, Lord Clarke's late amendment does not change the overall outcome of the case, as the Supreme Court was in agreement that the clauses were not penalties. What is less clear is whether the majority view that the clauses were primary obligations still prevails. Arguably, it may still prevail, as Lord Mance, although not deciding the point, stated in relation to the clauses that, although they were triggered by default, they amounted to "a reshaping of the parties' primary relationship" (see paragraph 183). However, parties should think carefully when adding similar clauses to their agreements as there is a real chance that they may be construed as secondary obligations and, therefore, within the scope of the penalty rule.
Clauses 5.1 and 5.6 provided respectively that:
- If Mr Makdessi breached certain restrictive covenants, he would not be entitled to the interim and final payments under the share sale and purchase agreement. Rather, he could be required to sell to Cavendish the remainder of his shares in the companies at a default price, based solely on asset value and without reference to goodwill (to which significant value had been attached in the sale price).
- He could be required to sell to Cavendish the remainder of his shares in the companies at a default price, based solely on asset value and without reference to goodwill (to which significant value had been attached in the sale price).
In the amendment, Lord Clarke agrees with Lord Hodge in having an open mind about whether clause 5.1 was a primary obligation and, therefore, outside the scope of the penalty rule (see paragraph 291, Lord Clarke and paragraph 270, Lord Hodge). In relation to clause 5.6, Lord Clarke also agrees with Lord Hodge, holding that it was a secondary obligation which fell within the scope of the penalty rule (see paragraph 291, Lord Clarke and paragraph 280, Lord Hodge). However, on the facts, the clauses were not penalties.
In their joint judgment, Lords Neuberger and Sumption (with whom Lord Carnwath agreed), held that clauses 5.1 and 5.6 were, in essence, price adjustment clauses, and therefore primary obligations. However, although in their view the penalty rule was not engaged, they proceeded as if it were, and held that the clauses were not unenforceable penalties.
Nonetheless, Lord Clarke's late amendment does not change the overall outcome of the case, as the Supreme Court was in agreement that the clauses were not penalties. What is less clear is whether the majority view that the clauses were primary obligations still prevails. Arguably, it may still prevail, as Lord Mance, although not deciding the point, stated in relation to the clauses that, although they were triggered by default, they amounted to "a reshaping of the parties' primary relationship" (see paragraph 183). However, parties should think carefully when adding similar clauses to their agreements as there is a real chance that they may be construed as secondary obligations and, therefore, within the scope of the penalty rule.
